Journal Press India^®

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Financial risk tolerance (FRT) refers to an individual’s willingness to take risks when making financial decisions. Risk tolerance is a crucial factor to consider when making optimal portfolio selections. This paper explores the relationship between the financial risk tolerance of individual equity investors and psychological factors. To achieve this, five indicators, namely self-esteem, sensation seeking, emotional intelligence, locus of control, and impulsiveness, were used to assess the impact of psychological determinants on FRT. The study was conducted in the state of Kerala, where data was collected from retail investors through a structured questionnaire. IBM SPSS 23.0 and IBM AMOS 26.0 were utilized to analyze the categorized data. The research framework was developed based on an extensive literature review, and these constructs were evaluated using Structural Equation Modeling (SEM) and path analysis to test the hypotheses regarding the relationships between multiple variables in the study. The study revealed that self-esteem, sensation seeking, emotional intelligence, locus of control, and impulsiveness have a significant positive impact on FRT.

Keywords

Financial risk tolerance; Investment; Individual investors; Psychological factors

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